Occidental may be lacking in size but it's never lacked ambition

This combo of file photos shows the logo for Anadarko Petroleum Corp. on the floor of the New York Stock Exchange on April 12, 2019, left, and a logo on the Occidental Petroleum building in Los Angeles on Jan. 26, 2010. A bidding war is breaking out over Anadarko Petroleum, with Occidental making an offer worth $76 per share in cash and stock that it says is about a 20% premium to Chevron's $33 billion deal.

Photo: Reed Saxon, AP

Occidental Petroleum Corp.’s $38 billion bid for Anadarko Petroleum Corp. is one of the boldest moves in the 99-year history of a company that has never lacked ambition.

While being meet with skepticism from analysts -- who have called the bid “ill-advised” and “a very bad idea” -- the proposal shows the appetite of Chief Executive Officer Vicki Hollub, 59, who took over in 2016 as only the fourth CEO in the company’s history and is one of the few women leading a major oil producer.

“It is tough to fight a bidding war against a supermajor that is four times larger,” Raymond James analysts Pavel Molchanov and Muhammed Ghulam wrote in a note Wednesday. The price of the deal is only about $8 billion less than Occidental’s total market value.

The move is fitting for a company that for decades was led by larger-than-life characters, including Ray Irani, who was for a time the industry’s highest-paid leader, pulling in $80 million in average compensation over several years. He took over from Armand Hammer, who built the company into a sprawling conglomerate with interests as far-flung as film making, horse breeding and meatpacking.

Irani’s protege and successor, Stephen Chazen, dismantled what was left of the Armand Hammer-era empire, spinning off or selling marquee assets and relocating the company to Houston from Los Angeles.

Permian Ambitions

When Hollub succeeded Chazen in early 2016, her stated goal was to continue refining her predecessor’s focus on the Permian Basin. In an April 2016 interview at the company’s Permian headquarters in Midland, Texas, she made no bones about her plans to snap up rivals to expand Occidental’s portfolio in what has since become the world’s biggest oil field.

Buying Anadarko would prevent Occidental from losing its position as the number one producer in the Permian to Chevron Corp., which is currently the second-largest. Hollub said she sees her company being able to reduce well costs for Anadarko’s Permian assets by more than 10 percent, and that the deal will boost cash flow while moderating growth.

Just hours after Hollub went public with her offer for Anadarko, she revealed in a Bloomberg Television interview that she’s been pursuing the explorer since January 2018 -- almost half the time she’s been leading the company.

Hollub still has some work to do to seal the deal. Anadarko already had Occidental’s higher offer in hand when it announced its April 12 deal with Chevron Corp. Occidental has boosted the cash portion of its proposal from 25 percent to 50 percent to make it more attractive, but that hasn’t moved Anadarko’s board, which said Wednesday it will review the Occidental offer but still recommends Chevron’s proposal. Furthermore, breaking up the Chevron merger would mean Anadarko paying a $1 billion termination fee.

To pay for the merger, the company will issue about 309 million shares (a little less than half of its current number of shares outstanding) and sell off $10 billion to $15 billion in assets in two years.

“The scale and depth of our company combined will allow us to grow production at a lower rate while increasing our dividend and adhering to our strong commitment to capital discipline,” Hollub said on a conference call Wednesday.

Paul Sankey, an analyst at Mizuho Securities USA LLC in New York, declared the bid “a very bad idea” and said many of the company’s largest shareholders are unhappy.

“They are really ripping up the playbook here,” Sankey wrote in a note. “We suspect with a great degree of hubris and management ego.”